Planning for your retirement

With Australians living longer than ever before, many of us will spend decades as retirees. Retirement’s no longer just a pipe, port and slippers time… well, not all the time anyway. Many of us will choose to keep working (either in voluntary or paid employment), others will want to travel, others to pour time into their families. Whatever you decide to do, planning for it now will help you get the most out of your time.

Give me the main points

The type of retirement you envisage has a massive bearing on how much money you’ll need.

For instance, a life spent on the high seas aboard the Queen Elizabeth will cost you a fair bit.

But as a general rule, your week to week costs will 70-80% of your pre-retirement spending.

Make a retirement plan that is flexible, adaptable – and evolves as your needs change.

It must be sustainable; it must last long enough in case you get a telegram from the Queen!

So what sort of retirement do you envisage? There’s no right answer of course: some people want to see the world (and never stop), others look forward to time for quiet contemplation.

As with all eras in life, planning and plotting—dreaming and scheming—is an essential part of mapping out the future we want. And sorting out the money—ensuring you have financial security—is crucial to finding the freedom for an enriching retirement.

Some questions to start with

Here are a few questions to get you underway. Thinking about these will likely lead to more questions, but that’s part of the fun. Part of the journey.

Where will you live when you’re retired?

What will you do with your time?

How much money will you need for your retirement plan?

Where will the money come from?

What can you do to keep yourself healthy?

Let’s look at the money side of things first.

How much money will you need?

The answer to this question has a lot to do with how much super you’ve saved—and how frugally/extravagantly you intend to live. The old adage that you should ‘cut your coat according to your cloth’ really applies.

It’s possible to get by on the age pension and other government supplements, but keep in mind the former’s set at about 28% of the average wage (and it’s not going to increase).

Assuming you have some savings and Super, how much should you set aside?

If you already have a personal or household budget, update the info to reflect your imminent retirement. While your work costs will be reduced or even eliminated, you’ll spend more in other areas eg. medical costs, travel and general ‘adventuring’. As a rule, most people need 70 to 80% of their pre-retirement income to maintain the standard of living they enjoyed before.

Keep in mind your plan needs to be a long-term one. It’s likely that your spending—and your needs—will be different in the later years of your retirement to what they were at the start. Your plan will have to evolve. It’ll have to be adaptable.

And where will that money come from?

Age pension

Once you reach retirement age—currently 65—you’re eligible for a fortnightly age pension (subject to asset and income tests). In 2015, this provides a maximum income of $854.30 a fortnight for singles, and $1,288 per fortnight for couples.

Superannuation

You can start accessing your super as soon as you hit your retirement age. Obviously, the less you draw down, the more funds you’ll have later on; because you’ll not only have a larger remaining nest egg, but you’ll be earning extra interest on that extra money.

Down-sizing your home

A large proportion of many Australian’s wealth is tied up in their family home. Many intend to down-size and buy a smaller, cheaper place. The extra cash—that realised equity—can then be invested and start generating an income.

Part-time work

The extra income can be nice. But it’s also a great chance to keep using the valuable skills you’ve built up over years. Or you might use this opportunity to try your hand in an entirely new industry.